FSA launches probe into ARM distributor

The regulator has referred Catalyst Investment Group to its Enforcement and Financial Crime Division.

ARM’s assets were frozen by the CSSF, the Luxembourg regulator, in August last year, which led to the freezing of seven UK bank accounts linked to the company by the FSA in November. The cash related to funds waiting to be invested in the life settlements vehicle.

ARM has been struggling for liquidity since missing income payments in July. The FSA declined to make any further comment on the case.

One of Catalyst’s non-executive directors is Lord Razzall, a senior Liberal Democrat peer and the party’s former business and regulatory reform spokesman.

Lord Razzall told the Financial Times: “The board of Catalyst has been dealing with these quite complicated issues for a number of years and are entirely happy that the company has not done anything improper and are quite confident this is what the FSA’s investigation will conclude.”

If UK investors in ARM are unable to reclaim their investments from Catalyst, their claims may fall to the Financial Services Compensation Scheme (FSCS). The Financial Times has reported that UK investors put roughly £75m into the ARM Asset Backed Securities fund.

The FSCS last month confirmed a £33m levy for advisers fuelled in part by claims relating to Keydata products, which were backed by life settlements vehicles. This is on top of the £326m interim levy charged to investment advisers and fund managers in January 2011.

The FSA published a supervisory notice on Catalyst in September 2011 banning it from distributing ARM products, although the notice was dated August 2010. The regulator said the delay in publication was designed to avoid a rush of redemptions which would have a “detrimental effect” on the rest of the fund.

In December the FSA proposed a ban on the sale and marketing of life settlements-backed products to retail investors, labelling such vehicles “toxic” and likening them to Ponzi schemes. The publication of the proposal triggered a wave of redemptions from the $995m EEA Life Settlements fund, which caused the fund to be closed to redemptions.